The dark heart of Australian banking

Sighhhh. I’ve written about this in detail a few years ago but nothing has changed and the deceit continues. All of the Mega Bank’s divisions continue to present to the market deceptive figures about the strength of their balance sheets and the amount of capital Mega Bank holds compared to banks in other parts of the world.
Mega Bank asserts that because APRA has harsher rules in some capital calculations under Basel requirements that its capital ratios when compared to banks in other jurisdictions should be higher, thereby representing greater balance sheet strength. Whilst this claim is based on an Australian Banker’s Association report of 6 or 7 years ago, is not only dubious, IMHO its down right deceptive.

In order to substantiate my claims, I refer you to CBA’s latest result presentation for the half year to Dec 2013.

In essence, the CBA presents that it has better capital ratios when compared to banks regulated by regulators in other jurisdictions than APRA insists it calculates and reports under Australian regulation. Whilst generally, jurisdictions that follow Basel Committee rules on capital calculations use the same calculation rules there is some discretion in the hands of local regulators as well as unknown variation within internal models. So differences do exist, which is why there is an international movement for greater transparency in reporting capital calculations which I reported on a few weeks ago.